In the last week of November, NSE declared two stock-brokers as defaulters and expelled them from membership. Following this, investors and traders registered with those brokers are now left in the lurch. Though the investors were asked to file their claims with exchanges, recovery for them is still subject to the numerous guidelines laid down by the exchanges and the amount lying in their respective Investor Protection Funds.

While there is little one can do to pre-empt the likelihood of a broker default, investors can sure do certain basic checks to protect themselves from any broker- related frauds.

The numerous communications you receive from the exchanges (BSE/NSE), depositories (CDSL/NSDL) and your share broker, flooding your inbox can be put to good use. Here we tell you how.

Contract note from broker

While physical contract notes were a thing of the past, brokers have resorted to electronic contract notes (ECN) lately. The contract notes essentially summarise all the trades carried out by you in a particular day. These password-protected files (passwords are usually your PAN number in capital letters) that are mailed to you by your share broker (as mandated by SEBI) give you first-hand information of trades executed by your broker from your account. The ECN generally contains details of your trades like order number, trade number, trade price, trade execution time, traded security & quantity, brokerage charged, details of other service charges and taxes (STT, GST etc.) paid. Besides, the SEBI requires the ECN to be digitally signed by your share broker.

The recent broker-related scams would have sure enlightened many of you that the ECN mailed by your broker is not a one-stop solution. It pays to cross check these statements with the ones sent by others, viz. the exchanges and the depositories.

Statements from exchanges

As mandated by SEBI, share brokers are required to upload to the exchanges the account balance of their clients as on the last day of each month. The exchanges (BSE and NSE) then send such information to the clients through SMS and email, on a monthly basis. Not only does this help the clients check and reconcile the funds available in the trading account, but it also helps them avoid possible misappropriation of funds.

These statements are especially useful for traders who avail the margin trading facility provided by their brokers. This is because, apart from displaying the outstanding funds, these statements also reflect shares of the client held in the broker’s beneficiary account. Additionally, the statement also show the stocks that have been pledged and F&O margins raised, if any. At all other times, even if the client has held shares in the demat account, the securities balance is displayed as NIL in the statement since it is reflective of only the broker’s collective pool demat account.

Do note that the funds and securities balances provided in the statements from the exchanges are reflective of what is maintained with your broker and does not include balance in your personal bank account and demat account.

Investors also need to note that these statements from exchanges are consolidated across exchanges.

Discrepancies in the balance reported by the exchanges must be first sorted out with the respective share broker. In case of non-resolution, the same can be intimated to the exchanges. The mails from the exchanges that have these statements attached also have the communication coordinates for both your share broker and the exchange.

Final check

For delivery-based trades, investors can do a final check with the consolidated account statement (CAS) provided by the depositories (CDSL/NSDL). These statements are mailed every month, if there was a transaction in either the demat account or the mutual fund folios. In all other cases, the CAS is sent on a half yearly basis in April and October, with balances as at the end of March and September, respectively.

The CAS summarises all your investments in equity shares, preference shares, mutual funds, bonds, debentures, securitised instruments, money market instruments and government securities held in demat form, with specific details such as ISIN number, name of the security, current balance, market value, etc. All investments held either in single or joint names where you are the sole/first holder, would be reflected in the CAS.

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